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Money

The www.FedPrimeRate.com Personal Finance Blog and Magazine

Friday, March 13, 2009

No Reward for Prodigal Sons and Daughters

under water with student loan debtWhen I defaulted on my student loans back in the mid-90's, I was given the opportunity to make things right. William D. Ford agreed to purchase my student loan debt, and promised that if I didn't miss a payment for a year, they would remove all related derogatory items from my credit reports. I paid on time for a year, and they kept their promise. Having those negative items expunged from my reports was a huge deal for me, because my defaulted debt was holding me back financially.

Today, students who made similar mistakes with their student loan debt and who are now looking to rehabilitate their loans are hitting a brick wall. These students aren't able to get the negative marks on their credit reports removed because the current credit crisis has caused the market for student loan debt to dry up. Details of this issue can be found in this NextStudent.com press release. Here's a clip:

"...Before a defaulted borrower's student loan can be considered fully rehabilitated and the borrower's credit and loan status returned to good standing, the guarantor must resell the borrower's college loan to a new lender. But in the current credit freeze, no lenders are buying.

In November, the sole commercial bank still buying rehabilitated student loans announced it would no longer do so. Although a few non-bank entities may still purchase some of these college loans, 19 of the nation's 35 guarantors currently have no buyers for their student loans.

Each month, the Chronicle reports, $150 million in student loan debt is being added to the growing backlog of student loans awaiting rehabilitation.

Consumer advocates and guarantors are concerned that if something isn't done soon to help move these student loans out of default and restore borrower credit, borrowers may get tired of remaining in default and stop making payments on their student loans altogether -- which would lead to even more, snowballing defaults..."

But help is on the way. The Federal Reserve's Term Asset-Backed Securities Loan Facility (TALF) program is now greasing the wheels of the credit markets by providing the funds necessary to revive the market for all kinds of debt, including student loan debt.

My prayer for the TALF: Godspeed.

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4 Comments:

Anonymous Adrian said...

This is absolutely ridiculous.

When I was in undergraduate school, I borrowed to get my degree in Psychology, which is, by the way, worthless. I have been deferring and forbearing since 2002 and owe $70, 000. Since graduation, I haven't made enough to live on let alone pay my school loans.
The big guys (wallstreet companies and CEOs) are getting help in this economic mess but someone born in Iowa and reared in Wisconsin can't afford to live. This is unbearable. There is no way I can afford to buy a car or purchase a home. I knew a guy from Ethiopia, who wasn't even a US citizen who had his entire college education paid for. This makes no sense.

And they want us to believe in uncle Sam.

Friday, April 10, 2009 6:34:00 AM  
Anonymous FedPrimeRate.com said...

> born in Iowa and reared in
> Wisconsin can't afford to live...

The system is forcing everyone to chase the big bucks. The result: Jobs that help to keep our society healthy are being filled with people who really don't give a hoot about their work. I had to deal with my local child protective services department recently. It was a joke.

Friday, April 10, 2009 12:26:00 PM  
Anonymous ShadowWind said...

The problem is that there is no guarantee of a good job when you get out of college with those loans. And many are just barely making it through and money is money. They don't understand what it will do to them later on.

It's good that the government is trying to provide ways for these kids to straighten out their credit. You don't realize how important it is until you need it.

Wednesday, April 22, 2009 3:48:00 PM  
Anonymous debt consolidation said...

It is good that government is helping those student to finish studies but students also need to get a nice job after studying to pay all his/her loans.

Friday, May 15, 2009 2:52:00 AM  

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